US dollar dips, Indonesia rupiah strengthens

The positive start by Asian equity markets has flowed into currency markets this morning, with the US dollar gently easing versus both major and regional currencies. The dollar index has fallen by 0.25% to 96.44 today.

The euro, British pound and Australian dollar are all 0.30% higher versus the greenback after a quiet news weekend gave markets no reason to unwind the bullish expectations of Friday.

To confirm the US dollar bear market is resuming, EUR/USD needs to rise above 1.1400. Similarly, the AUD/USD would need to close above 0.7000. GBP/USD has outperformed today, rising to 1.2650. But it faces resistance just above, at 1.2690, its 200-day moving average. We could be at the start of a new US dollar down-leg, or we could be moving to the lower end of the range, neither outcome has been confirmed as yet.

The PBOC set the USD/CNY fix at an almost unchanged 6.9965 this morning, bringing the recent multi-day CNY rally to a temporary halt. The PBOC seems content, for now, to allow USD/CNY to range between 6.9800 and 7.0200. We will need the major currencies in the CNY basket to strengthen notably versus the greenback for more robust fixings to resume.

The Indonesian rupiah is outperforming this morning, USD/IDR dropping by 0.90% to 14,365.00, even as President Jokowi calls for mass tasting for Covid-19 in eight provinces. Something that as I sit in Jakarta, should probably have happened months ago. The Bank of Indonesia may well be selling d0llars in the market, with the Governor vociferous in saying it is undervalued. Either way, a strengthening rupiah this week raises the odds of another BI rate cut on Thursday.

For now, markets are back to seeing what they want, which is reopening economies and a possible treatment for Covid-19—ignoring exploding cases in the US, as well as new outbreaks across Asia, Australia and parts of Europe. Some may call it “forward-looking”, others herd-like mass stupidity. Regardless of which, the momentum seems undeniable, and we expect US dollar weakness to continue into the European and New York sessions.